Does Rating Help Microfinance Institutions Raise Funds? A Cross-Country Analysis of the Role of Rating Agency Assessments in Microfinance Industry

Abstract

This thesis studies whether rating assessments help MFIs raise more funds, using a sample of 315 MFIs operating in 63 countries worldwide during the period of 1999-2005. The main conclusion is that there is no strong evidence that rating affects MFIs fundraising efforts, after accounting for possible endogeneity of rating by two-stage least square procedure, although rating has statistically significantly positive effects on the change of non-deposit liability and total equity of MFIs by OLS procedure. However, the evidence for endogeneity of rating is not strong, which might support the idea that rating helps impose market discipline. Difference of rating impact on raising liability between raters is detected. Rating updates, subsidized rating and rater types do not affect fundraising and regulatory authorities’ activities do not affect the values of rating.